Athleisure Is Here to Stay. That’s Good for Shareholders — but a Risk for Office Fashion.

Spandex is eating the world. Fleece, too. But let’s all agree to hold the line at something called the athleisure suit. More on that fashion menace in a moment.

This past Thursday, yoga tights pioneer
Lululemon
Athletica (ticker: LULU) reported blowout financial results that sent its stock 8% higher the next day. Quarterly sales increased 22%. That came atop 25% growth in the quarter a year ago. Margins expanded. Management called out high demand for shorts and other garments among a relatively new customer group: men.

That’s one sign that the so-called athleisure trend—wearing athletic fashions in casual settings or even at work—is a lasting consumer shift, not a fad. Industrywide, sports apparel sales have grown at a compounded 6% a year since 2013, 2.5 points faster than other apparel.

Don’t bring those gunmetal-gray Rocky Balboa sweats down from the attic, however; designs have changed. Lulu’s men’s ABC pants, for example, look like spiffy jeans but have zipper pockets and are made from a moisture-wicking fabric the company calls Warpstreme. “I use it for work, golf, a quick run, or just as an everyday pant,” raves one reviewer. Price: $128. The company also sells polo and button-down shirts for men, and skirts and coats for women. What the garments generally have in common are high-tech fabrics and a focus on comfort.

I thought I spotted a potential sportswear peak last summer when a Men’s Health article asked, “Should You Be Wearing an Athleisure Suit?” It featured fleece business suits made by a couple of fashion-forward clothiers. The suits don’t seem to be catching on, mercifully. A man’s suit is meant to be a tapered wool barrel that hides belly fat and gives the illusion of broad shoulders. It is an alternative to fitness, not a showcase for it. If athleisurists ever begin showing up to work in large numbers wearing fleece business suits, I plan to protest by accessorizing my wool suits with weightlifting belts and snorkels.

Expect more gains for comfortable fabrics, however. Last week,
UBS
published the results of a survey that found U.S. shoppers plan to spend 7% to 9% more on sportswear over the coming year, versus 4% to 6% more on other clothing. Shoppers under 35 were the biggest athleisure enthusiasts. And sportswear still makes up just 12% of global apparel, suggesting plenty of room for growth.

UBS reckons that bodes well for
Nike
(NKE) and
VF
(VFC), the maker of North Face clothing and Vans shoes, as well as Lululemon. Its survey suggests that shoppers are eager to buy sportswear brands, not just fashions. That could make things difficult for other clothing makers looking to up their athleisure games. The three aforementioned stocks have returned a compounded average of 26% a year over the past three years, double the return of the S&P 500 index.
Ralph Lauren
(RL),
Hanesbrands
(HBI), and
PVH
(PVH), which sells Calvin Klein garments, have all lost shareholders money over that stretch.

Clothing-stock investors are left with a choice between pricey athleisure stocks and the cheap but troubled rest.
J.P. Morgan
’s Matthew Boss, who has been right about the longevity of the athleisure trend in general, and the appeal of Lulu in particular, is still bullish. On Thursday, he raised his price target to $230 a share from $200.

The new price works out to 34 times his estimate for the next fiscal year’s earnings per share, and implies 14% more upside for the shares from here. If that valuation gives pause, note that Boss also raised his price target for VF, after a well-received quarterly report in July, to $108 from $95. That’s 25 times his calendar 2021 earnings estimate, and suggests a 23% gain from here.

There is no tech stock bubble,Barron’s has argued. Sure, the top five U.S. companies by stock market value are
Microsoft
(MSFT),
Apple
(AAPL),
Amazon.com
(AMZN),
Alphabet
(GOOGL), and
Facebook
(FB). But those don’t trade at ludicrous levels relative to their moneymaking potential. Facebook, for example, sells for 25 times next year’s projected free cash flow. It may be huge, but it’s still growing like a start-up, with revenue expected to increase by more than 20% this year and each of the next two, as more advertising dollars move to digital platforms.

But profits, like prices, can form bubbles of their own. In a report this past week, strategists at Bank of America Merrill Lynch pointed out that tech and e-commerce profits now make up 28% of the total for the broader U.S. stock market, a level associated with major past peaks. At the top of the housing bubble, profits for financials made up 29% of the market total. During the dot-com stock bubble, tech profits peaked at 25% of the total.

This time, it’s difficult to foresee what could cause tech profits to ebb. BofA sees potential for an “occupy Silicon Valley” backlash among policy makers, which could mean increased regulation or breakups. Otherwise, expect to see tech and e-commerce profits reach more than 30% of the overall pie soon. That will mean index investors will have their fortunes tied all the more to the same five companies.

I sense an athleisure connection. After all, Bill Gates’ khakis played a role in workplace casualization, and Mark Zuckerberg’s hoodies might have planted the seeds for the athleisure movement. If my calculations are correct, by the time tech hits 50% of overall profits, business attire will consist of spandex body suits from Lululemon, Nike scooter shoes, and North Face smartphone holsters.

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